Statistical Decision Theory with Counterfactual Loss

Benedikt Koch and Kosuke Imai

Papers from arXiv.org

Abstract: Many researchers apply classical statistical decision theory to evaluate treatment choices and learn optimal policies. However, because this framework relies solely on realized outcomes under chosen actions and ignores counterfactuals, it cannot assess the quality of a decision relative to feasible alternatives at the unit level, which is an important requirement in some settings. For example, in pretrial bail decisions, a judge must balance crime prevention upon release against the risk of imposing unnecessary burdens on arrestees. A central challenge in this framework is identification: since only one potential outcome is observed per unit, counterfactual risk is typically not identifiable. We show that, under strong ignorability, counterfactual risk is identifiable if and only if the loss is additive in the potential outcomes. We further demonstrate that additive counterfactual losses can yield treatment recommendations that differ from those based on standard losses when more than two treatment options are available. We show that additive counterfactual losses capture not only decision accuracy but also decision difficulty, whereas standard losses reflect accuracy alone. Finally, we introduce a symbolic linear inverse program that determines whether a given counterfactual loss yields an identifiable risk, without requiring data.

Date: 2025-05, Revised 2026-06
New Economics Papers: this item is included in nep-mic, nep-rmg and nep-upt
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